Gold Straddle help

P

powerfade

Hi guys

I did a few searches here and found out that there may be several different ways to do what I need to do.

I like the triangle forming in gold and I want to put on a straddle. Is anyone out there either willing to either step me through it real quick or else point me in the right direction in terms of which exchange I should be looking at for a 1 contract straddle or whether using a proxy would be just as efficient?

My broker is IB, which may impact my choice of strategy. I already have the trading permissions so I am good to go.

I'm going to check out the exchange websites for a decent tutorial but if someone knows of one and wants to post up a link, that would be fine too, I'll do my own homework.
 
Just found the ZG options in TWS.

So I guess the biggest question I would have is - is it advisable for some technical reason to go long the same distance from the underlying as you are on the short side? What I mean is, does the straddle have to be symmetrical

GC = 807

Long 1 April 815 call

Long 1 April 800 put

So that each strike is about $8 away from the underlying?

Second question would be, is April far enough out. I have always heard that the big mistake that newb options buyers make is to buy too close to expiration.

Last, I guess, is how far out should I be buying? Is $8 enough? Would options pros reduce the cost of the straddle by buying further out? Something tells me no, that that would be a newb thing to do because it looks cheaper.

One TWS question - can get a quote for the April 08 790 put but TWS is not giving me a quote for the April 08 820 call.
 
Sheesh!!

So a straddle in gold can cost me $5000 if I am going a reasonable ways out. Wow, my experience with equities straddles is like $600 for both legs.

Hmmm... maybe using a proxy is a better idea. At this point, the question 'What is the best stock to straddle as a pure play on the price of gold' becomes important.
 
Is this what you put in as your trade?

Long 1 April 815 call

SHort 1 April 800 put


This is not a straddle.....A straddle would be buying (or selling) a put and a call at the same strike. This is considered a volitility play.

Were you trying to trade a strangle? This would be buying (or selling) a put and a call with different strikes. Also a vol play.

What you wrote here is a very bullish trade (anyone can jump in and tell me what you would call this trade). If you were shorting the underlying that would be something.

Youre selling an ITM put, and buying a higher stike call.

Are you sure you weren't suprised by the amount of margin you were posting on the short put?

disregard everything i just said if this was merely a typo!
 
Quote from bt116:

Is this what you put in as your trade?

Long 1 April 815 call

SHort 1 April 800 put
More...

Dammit, sorry about that. Yes, a typo - I meant long both legs.

Pretty clear that my play needs to be a proxy. Any comments about the best one?

NEM chart doesn't look like the GC chart...NEM does look like ABX though.
 
Quote from powerfade:

Sheesh!!

So a straddle in gold can cost me $5000 if I am going a reasonable ways out. Wow, my experience with equities straddles is like $600 for both legs.

Hmmm... maybe using a proxy is a better idea. At this point, the question 'What is the best stock to straddle as a pure play on the price of gold' becomes important.
More...

5K merely reflects the size of the contract, which is 100oz so at 805 that's 80,500. So 5K is just 6.2%. A March straddle in NEM costs 16.8%, and an April one in GG is over 22%. But then again you got a strangle not a straddle!
 
isn't there an etf that tracks gold? apologies, i'm not that sure which one as i don't usually play metals. i will have a look though. only problem with the etf(s) is that the options tend to trade a little thin. my guess would be that you would definitely have to leg into each side of the straddle to get any sort of decent price.

Im not that familiar with TA, is a "triangle a signal that volitility is on the way? A straddle (or strangle even more so) is really a pure vol play. is that what youre going for here? sorry to keep harping on that, but an early mistake of mine (and i think most people when they first trade options) is buying straddles. It can be really hard to make money on them.
 
Quote from MTE:

5K merely reflects the size of the contract, which is 100oz so at 805 that's 80,500. So 5K is just 6.2%. A March straddle in NEM costs 16.8%, and an April one in GG is over 22%. But then again you got a strangle not a straddle!
More...

Yes, stupid typo to make, see above.

The reason I figured $5000 as a total cost for the straddle in GC was that I looked at the quote for the April '08 790 Put and it was $24.50 ($2450 ti purchase, right?). So I was extrapolating from that. I assume the call on the other side would actually be more expensive, even if the strikes are equidistant from the underlying.

The NEM straddle

Long $50 March call @ $3.20

Long $45 March put @ $2.55

looks like it will cost about $575 right now.

I would put it on if I knew that NEM is a decent play for a gold price proxy.

I am now off to check if there exist options on the Mini-Gold contract but I figure there probably aren't.
 
Quote from bt116:

Im not that familiar with TA, is a "triangle a signal that volatility is on the way? A straddle (or strangle even more so) is really a pure vol play. is that what you're going for here? sorry to keep harping on that, but an early mistake of mine (and i think most people when they first trade options) is buying straddles. It can be really hard to make money on them.
More...

No problem at all, that's why I posted. Yes, I would say that a chart that looks like gold right now is setting up for a breakout one way or another - that's what a TA guy would say, anyhow.

Yes, it was anticipation of vol that made me want to put the position on.

The worst part is that it's a timing thing - I guess it's sort of akin to catching the falling knife in stock trading.

I have, however, seen breakouts from nice triangles like this in the past. My problem is that I don't have an accurate idea about the risk reward on the trade. I don't know if, assuming an up move, the call will appreciate enough that it will significantly eclipse the cost of both the call and the put. I usually look for 2:1 in my stock trading, so the underlying would have to make a fairly significant move to achieve that. However, if one believes the likelihood that the move will occur is high, the reward requirements can be reduced, I guess.

I guess I figured that this would be a fairly cheap way to find out how the position worked out. I could paper trade it and that would be cheaper

: )

Any further comments are very welcome.
 
Quote from JimmyJammer:

Try using GLD as your proxy, let us know if it works for you.

JJ
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Okay! Streettracks Gold, right?

Now... TWS will display that symbol but will not give me the option of getting an options quote... maybe another symbol, although that would be strange - TWS always seems to give you the option of seeing the underlying or the option.

Off to find out.
 
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